Cuomo To Sue Schwab After Recorded Phone Calls Show Brokers Misrepresented Risk

New York state's attorney
general, Andrew Cuomo, has chosen Charles Schwab as his next
target. Cuomo is expected to file a lawsuit today alleging
civil fraud relating to Schwab's marketing and selling of
auction-rate securities.

Investors lost billions when the market for these securities
collapsed in early 2008. Several banks, including Goldman,
Citibank and UBS, have previously agreed to buy back more than
$60 billion in auction-rate securities from their clients.

The
Wall Street Journal has seen a copy of the proposed
complaint. Some of the evidence presented involves recorded
phone calls in which Schwab brokers allegedly represent
auction-rate securities as being easy to sell cash-alternatives,
the WSJ said.

Like the Bank of America emails or the Enron
"burn, baby, burn" phone calls, the sexiest part of the
complaint is always the primary source material.

WSJ:
The attorney general also contends that Schwab failed to train
brokers about the risks that the auction-rate securities market
could stop functioning, locking up people's money for years.

In one exchange between a Schwab broker and client that was
reviewed by the Journal, a customer says: "You know, I'm not
trying to make a ton of money. I just want to play it safe." The
broker responds: "The hardest part of this auction is getting
into it. That is the tough part. Getting out is easy as just
selling."

Charles Schwab has not seen the complaint, but called Cuomo's
approach "inconsistent with the law."